Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Indirect method) |
Add: Decrease in current assets |
Increase in current liability |
Depreciation expense and amortization expense |
Loss on sale of plant assets |
Deduct: Increase in current assets |
Decrease in current liabilities |
Gain on sale of plant assets |
Net cash provided from or used by operating activities |
Table (1)
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
The below table shows the way of calculation of cash flows from investing activities:
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Table (2)
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
The below table shows the way of calculation of cash flows from financing activities:
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Issuance of bonds payable |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Repurchase of stock |
Net cash provided from or used by financing activities |
Table (3)
To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.
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Chapter 14 Solutions
Financial & Managerial Accounting
- Use the following excerpts from Indigo Companys balance sheets to determine net cash flows from operating activities (indirect method), assuming net income for 2018 of $225,000.arrow_forwardStatement of Cash Flows—Direct Method The comparative balance sheet of Canace Products Inc. for December 31, 20Y6 and 20Y5, is as follows: Dec. 31, 20Y6 Dec. 31, 20Y5 Assets Cash $277,770 $258,990 Accounts receivable (net) 100,630 93,020 Inventories 284,060 275,390 Investments 0 106,700 Land 145,700 0 Equipment 313,410 243,490 Accumulated depreciation-equipment (73,370) (65,660) Total assets $1,048,200 $911,930 Liabilities and Stockholders' Equity Accounts payable $189,720 $179,650 Accrued expenses payable 18,870 23,710 Dividends payable 10,480 8,210 Common stock, $10 par 56,600 44,680 Paid-in capital: Excess of issue price over par-common stock 212,780 124,020 Retained earnings 559,750 531,660 Total liabilities and stockholders’ equity $1,048,200 $911,930 The income statement for the year ended December 31, 20Y6, is as follows: Sales $1,566,470 Cost of…arrow_forwardStatement of Cash Flows—Direct Method The comparative balance sheet of Canace Products Inc. for December 31, 20Y6 and 20Y5, is as follows: Dec. 31, 20Y6 Dec. 31, 20Y5 Assets Cash $234,050 $216,220 Accounts receivable (net) 84,790 77,660 Inventories 239,340 229,910 Investments 0 89,080 Land 122,770 0 Equipment 264,080 203,280 Accumulated depreciation-equipment (61,820) (54,820) Total assets $883,210 $761,330 Liabilities and Stockholders' Equity Accounts payable $159,860 $149,980 Accrued expenses payable 15,900 19,790 Dividends payable 8,830 6,850 Common stock, $10 par 47,690 37,310 Excess of paid-in capital over par 179,290 103,540 Retained earnings 471,640 443,860 Total liabilities and stockholders’ equity $883,210 $761,330 The income statement for the year ended December 31, 20Y6, is as follows: Sales $1,406,850 Cost of merchandise sold 579,300 Gross…arrow_forward
- Swifty Ltd. had the following 2023 income statement data: Revenues Expenses 1/1/23 Revenues $113,000 In 2023, Swifty had the following activity in selected accounts: 12/31/23 49,200 $63,800 Accounts Receivable 19,100 113,000 34,780 1,320 Write-offs 96,000 Collections Allowance for Expected Credit Losses Write-offs 1.320 Swifty Ltd. Statement of Cash Flows (Indirect Method) 1,300 1.540 1.520 1/1/23 Loss on impairment 12/31/23 Prepare Swifty's cash flows from operating activities section of the statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a negative sign e.g. -10,000 or in parenthesis eg. (10,000).arrow_forward(Calculating financial ratios) The balance sheet and income statement for the J. P. Robard Mfg. Company are as follows: Operating return on assets Debt ratio Average collection period Fixed asset turnover Return on equity Current ratio Times interest earned Inventory turnover Total asset turnover Operating profit margin The company's current ratio is (Round to two decimal places.) . Calculate the following ratios:arrow_forwardIn preparation for developing its statement of cash flows for the year ended December 31, 2016, Millennium Solutions,Inc., collected the following information ($ in millions): Payment for the early extinguishments oflong-term notes (book value: $50 million) $.................54Sale of common shares...............176Retirement of common share...............122Loss on sale of equipment ................. 2Proceeds from sale of equipment ................... 8Issuance of short-term note payable for cash................. 10Acquisition of building for cash............... 7Purchase of marketable securities (not a cash equivalent).............. 5Purchase of marketable securities (considered a cash equivalent)............1Cash payment for 3-year insurance policy.............3Collection of note receivable with interest (principal amount, $11)..............13Declaration of cash dividends............. 33Distribution of cash dividends declared in 2015 ................. 30Required:1. In Millennium’s…arrow_forward
- STATEMENT OF CASH FLOWS An entity presented the following comparative financial information: 2018 2017 Property, plant and equipment 2,190,000 1,440,000 Accumulated depreciation 450,000 270,000 Long-term investments 225,000 - Prepaid expenses 351,000 315,000 Merchandise inventory 1,950,000 1,260,000 Accounts receivable, net of allowance 1,560,000 1,080,000 Cash 690,000 640,000 Share capital-ordinary 3,000,000 2,400,000 Retained earnings 906,000 688,000 Long-term note payable 1,275,000 1,095,000 Accounts payable 309,000 282,000 Dividend payable 201,000 - Accrued expenses 825,000 - 2018 2017 Net credit sales 7,020,000 3,753,000…arrow_forwardFrom the following compute cash flows from operating activities: BALANCE SHEET (An Extract) Particulars Note No. 31.3.2015 31.3.2014 $4 1. EQUITY AND LIABILITIES Shareholders' Funds Reserve and Surplus II. ASSETS 1 5,00,000 1,00,000 Non Current Assets Fixed Assets Tangible Assets 3,00,000 2 2,50,000 Notes to Accounts 31.3. 2015 31.3. 2014 $ $ Note No. 1: Reserves and Surplus Surplus i.e., Balance in Statement of Profit and Loss 5,00,000 1,00,000 5,00,000 1,00,000 Note No. 1: Tangible Assets Machinery 2,50,000 3,00,000 2,50,000 3,00,000 Additional Information: During the year a part of machinery of $ 10,000 was sold for $ 5,000.arrow_forwardStatement of Cash Flows—Indirect Method The following balances are available for Chrisman Company: December 31 2017 2016 Cash $12,200 $15,300 Accounts receivable 30,500 22,900 Inventory 24,200 40,400 Prepaid rent 13,700 9,200 Land 114,400 114,400 Plant and equipment 610,000 457,500 Accumulated depreciation (99,100) (45,800) Totals $705,900 $613,900 Accounts payable $18,300 $15,300 Income taxes payable 4,600 7,600 Short-term notes payable 53,400 38,100 Bonds payable 114,000 153,000 Common stock 305,000 228,800 Retained earnings 210,600 171,100 Totals $705,900 $613,900 Bonds were retired during 2017 at face value, plant and equipment were acquired for cash, and common stock was issued for cash. The depreciation expense for the year was $53,300. Net income was reported at $39,500. Required: 1. Prepare a statement of cash flows for 2017 using the indirect method in the Operating…arrow_forward
- Calculate liquidity measures The following amounts were reported on theDecember 31, 2013, balance sheet: Cash.......................................... $ 8,000Accounts receivable .................. 22,000Common stock ......................... 40,000Wages payable ......................... 5,000Retained earnings ..................... 80,000Land .......................................... 20,000Accounts payable ..................... $ 15,000Bonds payable .......................... 120,000Merchandise inventory .............. 30,000Buildings and equipment, net ofaccumulated depreciation ..... 180,000 Required:a. Calculate working capital at December 31, 2013.b. Calculate the current ratio at December 31, 2013.c. Calculate the acid-test ratio at December 31, 2013.arrow_forwardStatement of Cash Flows—Indirect Method The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows: Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $269,900 $249,630 Accounts receivable (net) 97,780 89,650 Inventories 276,020 265,460 Investments 0 102,840 Land 141,570 0 Equipment 304,530 234,680 Accumulated depreciation—equipment (71,300) (63,290) Total assets $1,018,500 $878,970 Liabilities and Stockholders' Equity Accounts payable $184,350 $173,160 Accrued expenses payable 18,330 22,850 Dividends payable 10,190 7,910 Common stock, $10 par 55,000 43,070 Paid-in capital: Excess of issue price over par-common stock 206,760 119,540 Retained earnings 543,870 512,440 Total liabilities and stockholders’ equity $1,018,500 $878,970 Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:…arrow_forwardAccounting Suppose that a company's cash flow statement showed the following: o Net Income: $19,917.48 o Depreciation: $3,109.46 o Accounts receivable: $-996.63 o Inventory: $489.61 o Accounts payable: $984.18 What is this company's net cash from operating activities? $22,519.92 $23,014.49 $23,516.55 $20,394.64 $23,504.10arrow_forward
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